Experts say economic uncertainty could benefit restaurants

By

With Europe’s faltering economy and slowing growth in emerging markets, the world will look to the U.S. for the consumer power needed to stabilize the global economy, which could benefit restaurants, experts said at the 2012 Technomic Trends & Directions Conference Wednesday.

Speaking during an economic forecast session at the Donald E. Stephens Convention Center in Rosemont, Ill., Dr. Arjun Chakravarti of the IIT Stuart School of Business said American consumers will be asked to pick up the slack for Europe and Asia, though significant challenges to that demand remain. Restaurants will need to keep refining their value propositions, and U.S. lawmakers could help by passing policy aimed at increasing certainty in the economy, particularly with regards to housing, he said.

“We’re going to have to look at the U.S. consumer as the primary driver of global economic growth for the next couple of years,” Chakravarti said. “Keep in mind that we’re coming off a big debt overhang from the housing bubble. … In the fourth quarter, uncertainty from the election is going to matter in people’s decision-making.”

Even with an expected election-related slowdown, the economy could grow as much as 2 percent in 2012, with a slight acceleration in 2013, he said in his forecast.

Economy gaining confidence

Though job growth has not been as robust as people had hoped for 2012, it is worth noting that job creation has occurred despite a reduction of more than 4 percent in government sector spending this year, Chakravarti said.

Also, optimism as measured by the University of Michigan’s Consumer Confidence Index has risen steadily this year to a post-recession high of 79.3 in May. However, Chakravarti noted, those numbers need to be viewed with the context that negative economic news causes volatility in the confidence numbers.

“Consumer confidence is not as much of a leading indicator as you’d like it to be,” he said. “People are responding to a lot of one-off reports from the media and are highly reactive to that.”

Short-term factors like a change in gas prices in a given week will determine what customers do that weekend with their discretionary dollars, added Technomic president and CEO Ron Paul in his State of the Industry report. He said decreases in consumer confidence might not cause customers to trade out of restaurant visits as much as they opt for lower-price items, which degrades a restaurant’s average check.

Next page